Everyone wants to have a good credit record. Even if some of us have messed up in the past we do not want the past to haunt us when responsibly applying for a loan. In order to keep your credit score in tip-top shape it’s important to know how it’s composed.
The Canadian Beacon Score
In Canada your credit score is also known as your beacon score. In the U.S. it is known as your FICO score.
Your credit score is based on your past financial decisions. If you’ve made some mistakes your credit score might not be great. Knowing the elements of the Beacon score can help you determine how good or bad your credit score is.
35 percent of your credit score is composed of your payment history. This takes into account late payments, collections and bankruptcies. If you’ve had issues with that in the distant past it may not affect your credit score as much as what has happened more recently. Current or recent events are more important.
30% of your credit score is composed of the amount of debt you’re in. How much debt do you have? Are you making the payments? How much is your balance versus your credit limit? How many different creditors do you owe etc.
Age of credit accounts
How long have you had these credit accounts and how long have you been in debt with each one? 15% of your credit score will rely on the length of your credit accounts. Generally the longer the accounts have been open the better. This proves that you are able to maintain your debt.
10% of your credit score will be composed of the number of times you’ve made credit inquiries in the recent past as well as accounts opened. More credit inquiries are generally worse for you because it means that you cannot maintain your debt properly and keep trying to find different creditors and lenders who will accept you.
One of the advantages of using a brokerage firm is that they only pull your credit score once and only after do they shop around for the best rate. If you were to go to a bunch of lenders, each lender would individually pull your credit report and thus hurt your beacon score and lower your chances of obtaining the financing you want.
Types of credit
The types of accounts and loans that you have under your name will affect you in different ways. This accounts for 10% of the credit score.
What to do if you don’t meet credit score requirements?
It’s tough, some of us don’t have pristine financial pasts and this is reflected in our credit score. Most of us want to rectify the situation but if financial institutions cannot provide us with the loans we need, it’s hard to improve on it.
If you are desperately trying to consolidate your debt or buy your dream home and are getting rejected by financial institutions, consider private loans or private mortgages.
Loans Canada can help you secure a reliable private mortgage with individuals and institutions that don’t take your credit score into account when providing loans. Private mortgage lenders consider their loans as an investment and so do not need to check credit scores. They will often meet with individuals directly and judge their character and willingness to pay back the loan. Private loans are beneficial because the process is faster and easier. You can be approved and have access to funds in as little as 2 weeks. If you don’t have the money for a down payment and have a bad credit history, consider a private mortgage loan. If you need advice, we can always help you find the best private mortgage deal for your situation.